Direct State Provision Flashcards
1
Q
Diagram analysis
A
- The government may decide to provide a merit good by direct state provision and supply all of the resources in the market.
- Perfectly inelastic supply curve
- Demand curve slopes downwards
- market is provided free at the point of consumption
- Supply fixed at Q1 = consumers receive free.
- consumers past Q1 excluded
- aims to solve problem of overconsumption/ overproducton
- more socially efficient
- reduce welfare loss
2
Q
advantages of direct state provision
A
- no price exclusion
- government attempts to consider what society desires
- resource allocation improves
3
Q
Disadvantages of direct state provision
A
- goods provided free at point of use pressure on govt.
- How should excess demand be rationed
- direct provision is expensive
- intervention could exacerbate the market failure
- state-run organisations be wasteful (no invisible hand)
- private sector is completely ignored
- what is socially optimal level?